Hydro Annual Report 2011b

F20
FINANCIAL STATEMENTS
Note 5 - Acquisitions
The following information represents unaudited pro forma financial information as if the acquisition was completed as of the
beginning of 2011 based on Hydro's actual financial statements as of December 31, 2011. As Vale Aluminium has not been
incorporated or reported as a separate reporting entity, separate financial information does not exist for the acquired entities.
This pro forma financial information is, for the period prior to the acquisition, based on financial information for the separate
entities acquired, and carve-out condensed financial information derived from Vale's financial reporting records, provided by
Vale for illustrative purposes. The financial information for Vale Aluminium has been translated to NOK using the average
exchange rate for the period. Pro forma information is based on actual transactions completed by Hydro and Vale, which may
have been different had the acquisition been completed at an earlier time. Pro forma information has been prepared for
information purposes only, and is not intended to indicate what the results of operations would have been if the transaction
had occurred at the beginning of 2011.
Amounts in NOK million 2011
Revenue 93 121
Earnings before financial items and tax (EBIT) 5 576
Net income 2 519
Net income attributable to minority interests 76
Net income attributable to Hydro shareholders 2 444
Hydro issued an Information Memorandum dated June 2, 2010 describing the acquisition, and a Prospectus dated June 21,
2010 for the rights issue in July 2010 and the private placement to Vale in connection with the agreement for sale and
contribution of Vale Aluminium. Both documents contain more detailed information about the transactions, and are available
at www.hydro.com.
Hydro has not entered into any other significant business combinations during 2011 or 2010.
Note 6 - Financial and commercial risk management
Hydro is exposed to market risks from fluctuations in the price of commodities bought and sold, prices of other raw materials,
currency exchange rates and interest rates. Price volatility, which may be significant, can have a substantial impact on Hydro's
results. Market risk exposures are evaluated based on a holistic approach in order to take advantage of offsetting positions and
to manage risk on a net exposure basis. Natural hedging positions are established where possible and economically viable.
Hydro uses financial derivatives to some extent to manage financial and commercial risk exposures. Hydro's market risk
strategy is materially unchanged in 2011 compared to previous years.
Commodity price risk exposure
Aluminium
Hydro produces primary aluminium and fabricated aluminium products including remelting. Hydro also engages in sourcing
and trading activities to procure raw materials and primary aluminium for internal use and for resale to external customers.
These activities serve to optimize capacity utilization, reduce logistical costs and strengthen our market positions.
Hydro enters into future contracts with the London Metal Exchange (LME) mainly for two purposes. The first is to achieve an
average LME aluminium price on smelter production, matching the average customer pricing. Second, because Hydro's
downstream business, remelting, and the sale of third party products are based on margins above the LME price, Hydro hedges
metal prices when entering into customer and supplier contracts with corresponding physical or derivative future contracts at
fixed prices (back-to-back hedging). The majority of these contracts mature within one year. Hydro manages these risk
management activities on a portfolio basis, taking external LME positions based upon net exposures within given limits.
Aluminium price volatility can result in significant fluctuations in earnings as the derivative positions are marked to their
market value with changes to market value recognized in the income statement, while the underlying physical transactions
normally are not marked-to-market, except for those included in trading portfolios.
In order to secure cash flow or margins for specific projects or special circumstances, Hydro might enter into future contracts
on a longer-term basis. In these cases, hedge accounting has normally been applied. See the section on cash flow hedges in note
41 Derivative instruments and hedge accounting.